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Mining Bitcoin and other cryptocurrencies is the Wild West of technology and finance. The field is still evolving and largely unregulated, and the work comes with risk. As with any frontier, however, there’s significant profit potential for those who succeed.
Although cryptocurrency mining involves the latest in computational and financial advancements, starting a mining business requires no technical knowledge. The work is basically a numbers game, and anyone who’s willing to invest in the resources needed to win the game might profit.
Who is this business right for?
The first people to mine Bitcoin were mostly technology geeks who were intrigued by the cryptocurrency’s innovation. Today, geeks continue to experiment with cryptocurrencies, but they aren’t the only people mining Bitcoin and other cryptocurrencies.
Anyone who wants a primary or side business that provides passive income may be interested in running a cryptocurrency mining business. The work involved can be arranged around other obligations, and the budget required can be adjusted as needed.
What happens during a typical day at a bitcoin mining business?
Running a Bitcoin mining business is mostly hands-off work. As long as operations are running smoothly, business owners need to do little more than check their business’ Bitcoin holdings and the current exchange rate to see if they want to sell.
The most common computer malfunction is overheating, and business owners do need to respond quickly when this happens. Computers that overheat shut down, and they won’t provide any profit until they’re cooled down and restarted.
What is the target market?
A Bitcoin mining business serves the Bitcoin cryptocurrency and therefore, the software used must comply with Bitcoin’s standards. Other cryptocurrency miners must comply with the standards of the cryptocurrency being mined.
How does a bitcoin mining business make money?
Mining Bitcoin is akin to participating in competitive auditing. Businesses verify Bitcoin transactions by guessing 64-digit hexadecimal numbers, which are referred to as “hashes.” The first business to guess a hash that’s equal to or less than the target hash is awarded Bitcoin and a transaction fee.
Bitcoin is set up so that the number of BItcoin rewarded halves over time. This occurs roughly every four years, and no more Bitcoin will be awarded once there’s a total of 21 million Bitcoin. As the reward for Bitcoin decreases, the amount earned from transaction fees is expected to increase.
(Other cryptocurrencies operate differently.)
What is the growth potential for a bitcoin mining business?
Bitcoin mining operations run the gamut from individuals doing this as a hobby to large corporations that have vast resources. An example of a small-scale setup is Geoffrey Welborn’s inexpensive, yet profitable, dorm room operation. A business in Sweden has a much larger operation, maintaining 45,000 computers in a former helicopter hangar.
What are some skills and experiences that will help you build a successful bitcoin mining business?
Mining Bitcoin and other cryptocurrencies requires no specialized knowledge. Nevertheless, business owners should familiarize themselves with the process so they understand what they’re doing. Books, such as, Bitcoin Mining Step by Step, are popular resources on the subject.
Business owners may also want to invest in a USB Bitcoin miner. These usually aren’t profitable, but they’re helpful when learning the fundamentals of Bitcoin mining.
It’s also important to be familiar with the risks that accompany Bitcoin and other cryptocurrencies. Understanding market volatility is essential when deciding whether to sell mined Bitcoin. Being familiar with the illegal scams and hacks that occur helps business owners avoid becoming victims. John Oliver detailed some of the biggest risks, including scams.
What are the costs involved in opening a bitcoin mining business?
When it first started, Bitcoin could be profitably mined with a home computer. Since 2013, however, mining has become too competitive for computers to provide any real profit. Even the fastest computers aren’t quick enough to find the correct hash first.
Today, Bitcoin mining businesses use application-specific integrated circuits (ASICs) that are specifically made for mining Bitcoin or another cryptocurrency. An ASIC setup that can solve Bitcoin calculations on its own costs about $12,000.
Most people get into the industry for much less by pooling their resources, though. New ASIC miners are available for anywhere from $489 to $3,000. With one of these, business owners can join a mining pool where members literally pool their resources together. When the pool has a correct hash first, the proceeds are split amongst members.
For even less, business owners can mine through the cloud. In these agreements, business owners lease mining resources from a cloud-based provider and the leased resources are pooled with those leased by other business owners. Bitcoin.com and Genesis Mining both have plans starting under $200.
What are the steps to start a bitcoin mining business?
Once you're ready to start your bitcoin mining business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your bitcoin mining business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your bitcoin mining business keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Recommended: Fizzle.co offers video courses and a supportive online community of like-minded entrepreneurs. Try one month membership for free.
What are some insider tips for jump starting a bitcoin mining business?
To secure low electric rates, business owners should try to start with as large an operation as they can afford. If a business requires enough electricity to qualify for a reduced commercial rate, the most significant ongoing expense can be greatly reduced. (See Ongoing Expenses.)
How to promote & market a bitcoin mining business
Marketing efforts for a Bitcoin mining business should be targeted towards investors. Additional investors can help fund the acquisition of more equipment, which might help a business qualify for reduced electric rates. To attract investors, business owners should have a clear presentation that details what cryptocurrencies are and how profitable the business model is.
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How to keep customers coming back
A Bitcoin mining business doesn’t need to worry about attracting customers because the business serves the cryptocurrency and not people directly. Any business that complies with the standards can participate in the cryptocurrency.
How and when to build a team
A Bitcoin mining business can be run with no or minimal staff. If business owners have other obligations, they might want to hire someone who can respond when overheating computers.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a bitcoin business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, check out our informative guide, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
How much can you charge customers?
The compensation that Bitcoin mining businesses receive is determined by the cryptocurrency. At the time of writing, having a correct hash first netted the winning business 12.5 Bitcoins. The current exchange rate was just below $8,000 for 1 Bitcoin, so having a hash would net almost $100,000. Transaction fees in comparison are relatively small.
What are the ongoing expenses for a bitcoin mining business?
The ASICs needed for mining Bitcoin and other cryptocurrencies use a lot of power. One estimate places the amount of power needed to mine Bitcoin at 215 kilowatts per transaction computed. MarketWatch charts how much that costs in each state.
How much profit can a bitcoin mining business make?
A Bitcoin mining business’ profitability is directly tied to the value of Bitcoin and cost of electricity. When Bitcoin was trading above $20,000 per Bitcoin, this business was highly profitable. As the value of Bitcoin has diminished, so has profitability.
How can you make your business more profitable?
Bitcoin is just one cryptocurrency that business owners can mine. Additional cryptocurrencies include Ethereum, Zcash, Ripple, Monero and others. Which of these is most profitable to mine depends on many factors, including the value, difficulty to mine and projected forecast for each cryptucurrency.